Homeland Security
The SEC staff also has issued conflicting rulings on Teamsters proposals that asked railroad firms to report on their efforts to protect their facilities from terrorist attacks. The 2008 resolution replaced a proposal that was thrown out last year on ordinary business grounds. The Teamsters’ 2007 proposal asked three rail companies to report on their efforts to “safeguard the security of their operations and minimize material financial risk arising from a terrorist attack and/or other homeland security incidents.” The companies argued that the proposal raised an ordinary business issue, and the SEC staff agreed, citing its June 2005 staff bulletin allowing companies to omit proposals that entail the evaluation of business risk.

This year, the Teamsters eliminated the phrase “and minimize material financial risk” from its proposal, which was filed at Burlington Northern Santa Fe, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific. Burlington Northern challenged, arguing that the new proposal still related to an ordinary business issue. The Teamsters countered that the reference to financial risk had been removed to ensure that the resolution focused on the significant policy issue of rail security. After the SEC rejected the “no action” request, Burlington Northern and Norfolk Southern agreed to produce the requested reports, and the union withdrew its proposals.

However, on Feb. 25, the SEC staff granted an exclusion request from Union Pacific. While the firm acknowledged that its rail security protection against terrorism “transcends ordinary business,” Union Pacific argued that the proposal also seeks a report on “incidents and threats that are routine and have been faced by railroads for over a century.” The SEC staff agreed, noting that the “proposal appears to include matters relating to Union Pacific’s ordinary business operations.” The Teamsters have appealed that ruling.

“We were shocked that the SEC reversed course with the Union Pacific decision,” said Carin Zelenko, director of the Teamsters’ capital strategies department. “Rail security is a national priority and a matter of critical importance to the rail companies, shareholders, workers, and the general public--if rail security isn’t a matter of significant social policy, then what is?”

Since the Union Pacific ruling, Kansas City Southern has asked the SEC to reconsider its earlier rejection of the company’s “no action” request. The resolution will not come to a vote at CSX, because the SEC staff agreed with CSX that its existing reporting, especially on its Web site, made its proposal moot.

Diversity
The number of resolutions asking companies to increase efforts to diversify their boards has been shrinking. From 16 proposals filed in 2006, the number dropped to nine in 2007 and only four this year, according to RiskMetrics data. Of those four, three have been withdrawn after agreements at L-3 Communications, Take-Two Interactive, and Zimmer Holdings. One resolution remains at Mueller Industries.

As usual, a batch of resolutions asking firms to amend their equal employment opportunity (EEO) statements to prohibit discrimination on grounds of sexual orientation and gender identity have been withdrawn after settlements with companies. Calvert has withdrawn a proposal at Seacor and the New York City pension funds have withdrawn at AK Steel, Borg-Warner, Brink’s, Erie Indemnity, Family Dollar Stores, Kelly Services, Liberty Global, Marshall & Illsley, SPX, and Synovus. Nineteen proposals are still pending.

This campaign has involved two types of resolutions. One simply asks companies to amend their EEO statements to outlaw discrimination against gays and transgendered people. The second proposal asks firms to implement programs based on “equality principles” that include additional steps to avoid discrimination against homosexuals. The New York City pension funds, which have proposed most of the equality principles resolutions, were surprised when the SEC allowed Apache to omit that resolution on ordinary business grounds. In a March 5 letter, the SEC staff noted that “some of the principles relate to Apache’s ordinary business operations.” A similar proposal had been denied no-action relief by the SEC in the past.

Human Rights
One of the notable new campaigns this year has been an effort by investors to get six investment firms to issue reports on “how [their] investment policies address or could address human rights issues.” The proposal reflects shareholder concerns over investments in foreign oil companies and other firms that do business in Sudan.

The proposal survived a challenge at the SEC, which rejected Citigroup’s argument that it dealt with ordinary business issues. At this point, it appears that the resolution will be on the ballot there and at JP Morgan Chase, Morgan Stanley, and Wells Fargo. Walden Asset Management worked out a withdrawal agreement at T. Rowe Price. The company agreed to add a policy statement to its Web site outlining the ways it incorporates nonfinancial and corporate social responsibility considerations in investment decisions. T. Rowe also reported that it had eliminated its managed account holdings in PetroChina and that its managed account holdings in Sinopec are now only minimal. Divestment proponents have targeted both firms over their operations in Sudan.

Trillium Asset Management also negotiated a withdrawal agreement at Merrill Lynch, which agreed to discuss its policy on human rights and genocide on its corporate social responsibility Web site. In addition, Investors Against Genocide has filed scores of Sudan-related proposals at mutual funds overseen by Fidelity and Vanguard. (For more details, see the March 21 edition of R&GW.)

Product Safety
The SEC staff has also issued divergent decisions on new resolutions on product safety, depending on the type of company receiving the resolution. Following the spate of news reports last year about hazardous products from China, the New York City pension funds filed a proposal that asked for “a report evaluating company policies and procedures for systematically minimizing customers’ exposure to toxic substances and hazardous components in its marketed products.” The SEC allowed Family Dollar to omit the proposal on “ordinary business” grounds. After that, the city modified its proposal to ask five companies to list products that could be affected by new safety concerns.

The SEC staff then told toymaker Mattel that it could not omit the new product safety proposal from the New York City funds and Connecticut’s retirement funds. After that ruling, Mattel agreed to provide the requested report, so that proposal has been withdrawn. While the SEC would not allow Mattel, as a manufacturer, to omit the product safety proposal, the staff did allow Home Depot and Wal-Mart Stores to exclude the same resolution on ordinary business grounds, as dealing with “the sale of particular products.” J.C. Penney and Target negotiated withdrawal agreements instead of seeking “no action” rulings. The New York City funds engaged Best Buy and Pier 1 on the issue and worked out agreements with both.

Church-affiliated proponents have withdrawn two of three resolutions asking companies to report on efforts to ensure the long-term sustainability and security of their product supply chains. The withdrawals took place at Kellogg and Safeway after the companies provided the requested information.

Director of Publications Ted Allen and Staff Writer L. Reed Walton contributed to this article. An article on environmental resolutions appeared in the March 21 edition of Risk & Governance Weekly.